Appointment of foreign nationals as directors in India and Doing business in India resident of country shares land border with India.
National Security is of utmost importance and the Government of India (GOI) is focused to allow the residents of countries sharing any land border with India for any business reason with proper verification through the process laid by the GOI which we are going to discuss in this article.
The GOI is through its various initiatives emphasized its concern on the national security. In one of their initiatives, the GOI has already implemented certain processes of verification and approval measures for the foreign investments made by the countries sharing borders with India. The GOI, as a subsequent step, moving ahead with changes in General Financial Rules, enables further restrictions on bidders from the countries which share a land border with India (“subjected countries”) on grounds of defence of India, or matters directly or indirectly related thereto including national security. Seven countries share the land boundaries with India as listed are listed below (impacting countries), while the other two countries Sri Lanka and Maldives share water borders with India (non-impacting countries):In Northwest there lies
Afghanistan and Pakistan
In the North, India, is bound with China, Bhutan and Nepal,
To the far east India, is surrounded by Myanmar and Bangladesh to the east.
As per the said Rules, any bidder from the subjected countries will be eligible to bid in any procurement whether of goods, services (including consultancy services and non-consultancy services) or works (including turnkey projects) only if the bidder is registered with the Competent Authority in India. The Competent Authority for registration will be the Registration Committee constituted by the Department for Promotion of Industry and Internal Trade (“DPIIT”).
Political exposure and security clearance from the Ministries of External Affairs and Ministry of Home Affairs, respectively, will be mandatory.
The said Rules takes into its ambit public sector banks and financial institutions, autonomous bodies, Central Public Sector Enterprises (CPSEs) and Public Private Partnership projects receiving financial support from the Government or its undertakings.
State Governments too, play a vital role in national security and defence of India. The Government of India has written to the Chief Secretaries of the State Governments invoking the provisions of Article 257(1) of the Constitution of India for the implementation of this Rule in procurement by State Governments and state undertakings etc. For State Government procurement, the Competent Authority will be constituted by the states but political and security clearance will remain necessary from the respective Ministries.
Relaxation was provided in certain limited cases, including for procurement of medical supplies for containment of COVID-19 global pandemic till 31st December 2020. Countries to which Government of India extends lines of credit or provides development assistance, have been exempted from the requirement of prior registration through a separate Order.
Now, the Government of India has come up with further restriction for the persons having residence of the subjected countries. This result in a direct impact on their appointment as Directors in the Indian Companies whereby they are now instructed to take necessary security clearance from Ministry of Home Affairs.
The GOI through its Ministry of Corporate Affairs vide its Notification No. G.S.R. 410(E) issued on 1st June 2022, amended the Companies (Appointment and Qualification of Directors) Rules, 2014 and the relevant portion of the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 read as under:
Addition of proviso in Rule 8
“Provided further that in case the person seeking appointment is a country which shares land border with India, necessary security clearance from Ministry of Home Affairs, Government of India shall also be attached along with consent.”
In Rule 10, the following proviso has been inserted:
“Provided that no application number shall be generated in case of the person applying for Director Identification Number is a national of a country which shares land border with India, unless necessary security clearance from the Ministry of Home Affairs, Government of India has been attached along with application for Director Identification Number.”
New Disclosures has been added in DIR-2 and DIR-3 w.e.f. 01st June 2022.
The Government of India has introduced an unique link (https://esahajmcaservices.nic.in/) where an application may be submitted.
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